Thursday, October 22, 2020

Inflation slows in January in line with expectation

The national inflation went down in January as expected following two consecutive months of spike influenced mostly by Pula vs the South African rand (ZAR) and drop out of administered prices that rose in the last few months.

In its monthly CPI update, Statistics Botswana said in January 2012, national year-on-year inflation rate stood at 8.8 percent, down by 0.4 of a percentage point from 9.2 percent in December 2011.

The agency headed by Annah Mejalantle revealed group indices were stable between December and January, recording movements of less than 1.0 percent except for the Education group index which recorded an increase of 6.3 percent.

Investec said the decline in inflation was largely expected as the increase in administered costs seen in the previous year is starting to drop out of the annual comparison.

“As we had forecast, inflation in Botswana finally slowed after peaking in November and December last year,” Carol-Jean Harward, investment analyst at the asset management company said on Friday.

However, despite providing some comfort after what had been a terrible year for households, the annual inflation rate, which fell 0.4 percent to 8.8 percent in January from 9.2 percent in December, is still well above the Bank of Botswana’s 3-6 percent target band.

“The strength of the Pula against the Rand, which ultimately makes our imports cheaper, also aided the decline in the inflation number,” she added.

According to Statistics Botswana, the Pre-primary & Primary Education section index was 173.0 in January, up from 154.5 in December.

The Secondary & Tertiary Education section index moved from 122.8 in December to 126.2 in January.

The rise was mainly attributed to increases in the private secondary, pre-primary and primary education school fees and school uniform for public primary schools.

The Clothing & Footwear group index registered an increase of 0.6 percent from 138.8 in December to 139.6 in January.

All constituent section indices recorded increases, Clothing (0.7 percent), Other Articles of Clothing, Cleaning, Repair & Hire and Footwear, each recorded increases of 0.5 percent between the two months.

The Transport group index registered an increase of 0.5 percent, from 152.6 to 153.4 between the two months.

The increase was attributed to the general rise in the constituent section indices, notably, Purchase of Vehicles (1.3 percent) and Transport Services (0.4 percent).

Investec said it hoped the numbers will trend down in the coming months.

“We expect inflation to trend lower in February to 8.6 percent and continue slowing throughout the year, although in our opinion it is unlikely that it will reach the target band in the second half of the year,” said Harward.

She added that despite the fact that government continues to tighten its purse strings and that there is a very low possibility of an increase in the salaries of public servants, the lower inflation will ease the squeeze on living standards and help to lift household consumption from its current low levels.

Harward also said the Central Bank will maintain the current interest rate for the remainder of 2012, in a bid to support the economic momentum.

“We maintain our view that the Bank will keep the rates on hold for the rest of the year so as to maintain the current economic growth. Any further external price shocks, however, triggered for example by rising tensions in oil exporting countries, could have a material impact on the inflation outlook and consequently the interest rate outlook.”

Bank of Botswana last week maintained the Bank Rate at 9.5 percent because of its opinion that the country’s high inflation rate is transitory.

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